VAT structure and legislation is complicated for any multinational organisation or business making sales across the globe but with the exponential growth of the digital services industry, VAT compliance is even more complicated within this sector. Moreover, many business owners within this tech-driven marketplace are unaware of the risks of being non-compliant, according to VAT compliant specialists, vatglobal.
Over the past four years, 57 countries out of the 150 countries with existing VAT regimes have implemented VAT legislation around digital services. When you reflect on how cumbersome it is to propose and lay down policies around taxation, this is actually an exceptionally fast uptake rate. And more countries are to follow suite.
Just last week, the Ukrainian VAT authorities released their proposal for the liability of VAT registrations for foreign digital services businesses. The month before that it was Singapore, India and Norway who introduced their laws around digital services VAT. It means that the majority of countries will follow and any business providing a digital service abroad needs to make headway on their compliance and registration strategies.
What is Digital Services VAT?
Digital services VAT refers to the treatment of global taxes owed on the international sale of digital/e- services (e.g. apps; games; video; software etc.). From tech startups to multinationals, many businesses are unaware of the VAT implications and responsibilities they have to register for VAT in most of the countries they sell into.
What are the Consequences for Non-Compliance?
A lack of knowledge in this Digital Services VAT area or purposely avoiding these tax obligations has consequences and the potential for penalties further down the line. To illustrate, a business could grow to become a middleweight champion in its field only to be smacked down by retrospective tax penalties which are now a major blow to a company’s bottom line. Avoiding digital service VAT penalties early in your business growth is critical.
Furthermore, VAT authorities with current digital service VAT laws in place, are using their own technology to ensure non-resident businesses comply with their laws. For example, Germany’s and Australia’s VAT authorities are developing technology that identifies non-compliant businesses and are approaching those companies directly.
There is a lot of debate around how much control a foreign tax office can hold over your non-resident business. What kind of penalties can Spain really hold over your American business? The answer depends on the relationship your local VAT authority has with the foreign VAT authority. For the most part, as it stands, tax offices are reliant on your own business’s ethical and moral compass to comply with their VAT laws.
Non - Compliance Penalties
While each country has its own punitive measures, if your business does not actively seek 100% VAT compliance in the foreign countries (or simply ignores foreign VAT laws), the following may arise:
● Fines and penalties with interest accruing
● Decrease valuations of business wishing to sell
● Reduce business’s ability to raise financing
● Increase the likelihood of hidden liabilities
● Tarnished brand reputation
● Potential criminal implications
“Managing VAT compliance in multiple jurisdictions can be incredibly burdensome on a company’s finance department. Unfortunately, there is no way around it, if your business is selling digital services to foreign customers, you should register but you don’t have to do it alone. There are outsourced solutions that can save you the hassle,” says Gareth Kobrin, CEO of vatglobal, a leading VAT compliance company who have tens of thousands of VAT registrations under their belt.
As business becomes more global and the rules constantly change, the VAT challenges grow more complex for in-house tax teams within SME's as well as enterprise businesses who are growing their global footprint. Using an outsourced expert such as vatglobal, could help your business navigate the complex world of digital services VAT while mitigating any non-compliance risks along the way.
vatglobal is a leader in VAT Compliance & Registration solutions. They assist businesses to manage multi-jurisdictional VAT and GST registrations, compliance and reporting, with expertise and ability to assist on tax matters in all 28 European Union member states, as well as over 40 other jurisdictions around the world.
vatglobal is a capable partner with ability to offer knowledge and expertise to businesses with cross-border business activities in any jurisdiction with a VAT or similar tax regime. vatglobal is also a subsidiary within the behemoth Indirect tax specialist group, VAT IT.
About VAT IT Group
VAT IT is a global leader in outsourced international VAT and tax solutions. Their mission is to maximise tax recovery end to end through our industry-leading technology and ensure complete compliance, wherever our clients are doing business.
A global network and extensive operational resources enable us to serve over 12,000 clients spanning over 117 countries worldwide. These range from small and medium-sized enterprises to large multinational corporations, across a wide range of sectors